Borough in hunt for cheaper water: Croydon wants to end anomaly of some homes paying pounds 72 a year more for supplies

A London borough wants to replace its water company with a cheaper rival, in a move which could transform the shape of the industry.

Two councillors, including Croydon's new Labour leader, Mary Walker, recently met officials from the water industry's economic regulator Ofwat to discuss replacing East Surrey Water Company with Thames Water.

Ofwat says the proposal is interesting. So does Thames, which says it supplies the cheapest tap water in England.

But East Surrey Water Company, which would lose a large part of its business, says the plan is unworkable. The managing director, Phil Holder, also says its water is superior.

About 20,000 homes in the borough, on the southern edge of London, are supplied by East Surrey. While the average Croydon household pays pounds 162 for water and sewage disposal to Thames Water, which supplies much of the capital and home counties, the East Surrey customers pay pounds 234. Each April, when the bills arrive, the council receives many complaints from householders about the discrepancy.

Now council officers are considering what scope the legislation for water privatisation allows for reconnecting thousands of homes to Thames supplies. Under the Competition and Services (Utilities) Act 1992, no water consumer is compelled to use only water from the local supplier.

But although the Government would wish it to be otherwise, water and sewage services are the most natural of monopolies. It is rarely practical or cost-effective for the disgruntled consumer to connect himself to a distant supplier.

And unlike the situation with gas and electricity, it is not feasible for one company to rent the mains pipes of its neighbour to supply customers outside its area. Since a water company has a heavy legal responsibility for the purity and wholesomeness of the water it supplies, it is wary of allowing its water to be mixed with anyone else's. Council officers suggest Thames would have to buy East Sussex's distribution network.

Mr Holder said: 'Croydon is questioning the whole way the industry has been set up. I don't think anything will come of it at the end of the day.'

He said his company's charges were higher - but reasonable - because East Surrey served a mainly rural area with a much greater length of mains to maintain per property than urban Thames. 'Our water comes from aquifers deep underground and is filtered by 200ft of chalk - we've won a Golden Tap award. Most of Thames's comes from the river.'

But Mary Walker, who became Croydon's Labour leader after the Conservatives lost control of the council last week, disagreed: 'It's very hard water. There have been complaints about taste.'

Yesterday a Thames spokesman said: 'We'll be looking at any proposals Croydon makes with interest.'